The Asymmetric Effects of Exchange Rate Fluctuations: Theory and Evidence From Developing Countries
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
Summary:
The paper examines the asymmetric effects of exchange rate fluctuations on real output and price in developing countries. The theoretical model decomposes movements in the exchange rate into anticipated and unanticipated components. Unanticipated currency fluctuations determine aggregate demand through exports, imports, and the demand for domestic currency, and determine aggregate supply through the cost of imported intermediate goods. The evidence indicates that the supply channel leads to output contraction and price inflation in the face of unanticipated currency depreciation. In contrast, the reduction in net exports determines output contraction without reducing price inflation in the face of unanticipated currency appreciation.
Series:
Working Paper No. 2000/184
Subject:
Currencies Depreciation Exchange rates Foreign exchange Inflation Money National accounts Prices Production Production growth
English
Publication Date:
November 1, 2000
ISBN/ISSN:
9781451859355/1018-5941
Stock No:
WPIEA1842000
Pages:
33
Please address any questions about this title to publications@imf.org